LPG Refilling and Distribution Business

[KuyaDanny]

Originally posted by hello_kitty
of course, time to time ERB will inspect your facilities and check if your tanks are in good condition...

Please clarify some things for me. At which level does ERB inspect tanks: refiller, distributor, or retailer? Does selling LPG require some sort of permit/registration from ERB?

[mell]

kd,

ERB inspects the tanks from all levels of the supply chain: retailer, dealer and refiller. ERB can actually shut down a business if they can prove that it continually uses unsafe tanks.

Before 1997, the LPG industry was regulated and there was a tight restriction if you wanted to refill, receive and refine lpg....

The only way back then to get a permit to operate a refilling, receiving and refinery plant(s) was to bribe the proper officials, but the bribing price was extremely steep so only a very few independent refillers existed prior to 1997.

[mac_bolan00]

the ERB is kinda vague about storage limits but most neighborhood distributors keep less than 900 filled tanks at any given time: public safety considerations.

[mell]

The LPG industry heavily employs the Just In Time Method, inventory levels are kept to a minimum.

[mell]

whipcheck,

I gave your 3000 cylinder inventory a thought, and here is what I came up with:

Given your 3000 cylinder inventory here are some reasonable assumptions we can derive when in operating your LPG retail outlet.

Assumptions:

• Let us assume that you are only selling to end users
• Let us further assume that it takes them a month to use up their tanks
• We will also assume that you sell 1500 cylinders a day; and get back 1500 cylinders per day from your customers
• Finally, we will assume that you have 26 business days in a month

Conclusions based on assumptions:

78,000 cylinder sales per month
858,000 kg lpg sales per month

This sales figure is equivalent to the sales volume of a small refilling plant.
Although, there are some dealers that have these type of volume, but these are the exception. Also, these dealers were established during the regulation period. Only a very few were able to withstand the competition after deregulation.....

[whipcheck]

Mell, KD, mc_bolan00:

Thanks for a very interesting discussion. I have set a meeting with a refiller (not one of the big 3) in 2 weeks time. Through this thread and some research, I've learned a lot but am sure it's not enough.

Anything in your thoughts that may be good to ask and find out from the re-filler? C'mmon guy's help me out again please!

Mell:
That 3,000 tank is a magic number. Pipe dream? Pero that 1,500 lpg cylinder a day would be a lot to sell in one day ... sounds like bola-bola sa kariton. Nice to think if it comes to that but it's having 39,000 end-users of one lpg brand all buying from me. What is a realistic number of houses in a town/city or province? Got to check the census group!

1500 cylinders a day may not be a realistic assumption.

[mell]

Originally posted by whipcheck
Mell, KD, mc_bolan00:

Thanks for a very interesting discussion. I have set a meeting with a refiller (not one of the big 3) in 2 weeks time. Through this thread and some research, I've learned a lot but am sure it's not enough.

Anything in your thoughts that may be good to ask and find out from the re-filler? C'mmon guy's help me out again please!

Mell:
That 3,000 tank is a magic number. Pipe dream? Pero that 1,500 lpg cylinder a day would be a lot to sell in one day ... sounds like bola-bola sa kariton. Nice to think if it comes to that but it's having 39,000 end-users of one lpg brand all buying from me. What is a realistic number of houses in a town/city or province? Got to check the census group!

1500 cylinders a day may not be a realistic assumption.

Whipcheck,

Make friends with your refiller, and develop a relationship.

When your tanks are being refilled ask them if you could observe while your tank is being refilled (this should prevent them from underfilling your tanks).

The 1500 number I gave you were based on the 3000 number that you gave me.

Our company sells approximately 50% of the number of tanks we own per day, this is the most optimal usage of the tanks possible. I don’t know where your 3000 optimal number came from, but tank prices varies, the prices are based on the international prices of metal and the dollar-peso exchage rate; my point is, you should not focus too much on your strategy based on tanks alone. As a retailer, you should sell 50% of the number of tanks you own in 3 to 7 days. If you sell only say 30% of the number of tanks you own 3 to 7 days that means you have excess inventory (commonly know as nagpapatulog ng tangke).

Given the current environment of the LPG industry:

If you are a top seller, 3000 cylinder sales a day is possible for a province the size of bulacan, but it takes years of experience to get to this point.

Like I said in my earlier posts, start small, say 10 cylinders and develop a strategy based on your experience. It is better to start small.

How much is your capital anyway?

What is your strategy?

3000 is a not a pipe dream, but it takes time and inovation to get to this number. Competition is feirce, if you are ready to do battle welcome to the fray!

[mac_bolan00]

by far the most successful distributors among our bank's clients are thos who wangled a supply contract for restaurants, fast-food outlets and mall food court tenants. don't limit yourself to households. a small family might take more than a month to use up a tank and residential areas are spread out thin!

where do you live? downtown, midtown or pure-residential?

[whipcheck]

Mell:

Capital? I'm setting aside enough to start several hundred of lpg tanks and could go for more stretch if I want. But that changes also depending on opportunites that cross my way. I'm planning to invest/gamble on that OFW-Bank (see Filipinos Everywhere). But like you guy's said "start small" and see how it goes.

Why did you say that competition is fierce? Are you referring on the competion between the big-3, refillers? At the dealer and resellers level, it does not seem to exist. Well ***** di ko pa kita. But where I'm standing, nobody seems to be doing anything but wait for the end-users go to their shop and buy a refilled tank. Parang, ayan ang lpg brand that I am selling, buy it if you want, if you don't like it, go somewhere else. Like mentioned earlier, end-users are left on their own to decide what brand to use which is usually decided at a snap by whatever is in the nearest canto.

mac_bolan00:
Thanks for confirming part of my thoughts. I live in a residential area near downtown but planning to get a small shop if I push through with the lpg business.

________________

Any questions that may draw useful information from the re-filler when I meet with them?

[mell]

Originally posted by mac_bolan00
by far the most successful distributors among our bank's clients are thos who wangled a supply contract for restaurants, fast-food outlets and mall food court tenants. don't limit yourself to households. a small family might take more than a month to use up a tank and residential areas are spread out thin!

where do you live? downtown, midtown or pure-residential?

It is very hard to break into the commercial lpg market, much harder than the household market.

Usually, either independent refillers or big three refillers have dominance of this market.

I don't think a small retailer can offer the kind of discount a refiller can offer these established restaurants and fast food outlets.

Also, the commercial cylinders are more expensive.

It depends where you are, but competition in the commercial lpg market can be bloody, literally.

[mell]

Originally posted by whipcheck
Mell:

Capital? I'm setting aside enough to start several hundred of lpg tanks and could go for more stretch if I want. But that changes also depending on opportunites that cross my way. I'm planning to invest/gamble on that OFW-Bank (see Filipinos Everywhere). But like you guy's said "start small" and see how it goes.

Why did you say that competition is fierce? Are you referring on the competion between the big-3, refillers? At the dealer and resellers level, it does not seem to exist. Well ***** di ko pa kita. But where I'm standing, nobody seems to be doing anything but wait for the end-users go to their shop and buy a refilled tank. Parang, ayan ang lpg brand that I am selling, buy it if you want, if you don't like it, go somewhere else. Like mentioned earlier, end-users are left on their own to decide what brand to use which is usually decided at a snap by whatever is in the nearest canto.

mac_bolan00:
Thanks for confirming part of my thoughts. I live in a residential area near downtown but planning to get a small shop if I push through with the lpg business.

________________

Any questions that may draw useful information from the re-filler when I meet with them?

Currently, the LPG industry is saturated; many people enter and quickly exit the LPG business because they are unprofitable. If your area is not saturated with LPG retailers that deliver to households, or have any other innovative means of marketing, then I will say you are very lucky, but I seriously doubt if that is the case.

Do you know how hard it is to sell pandisal? You have bakeries all over the place, and you have people that walk the street selling their pandisal every day. So is the LPG market. There are retailers in every canto, and there are some that offer free delivery, and there are some that make follow up calls.

I really feel that the LPG industry is fierce as a whole, but I will admit that it is less turbulent at the retailer level in terms of pricing, and they often benifit if a price war errupts between refillers. I will also say that small retailers have very little bargaining power. Refillers will make sure that they maximize their profit. You think that you are only competing with other retailers? In reality you are going to compete with the dealers of the big oil companies, you will compete directly against refillers, and you will compete against your own refiller.

Whipcheck, I have seen people spend millions in this business and hire consultants and still fail. It may seem that the LPG is unsophisticated, but actually it takes a lot of time and dedication to succeed in it.

But, it is not impossible to succeed; I can only offer you this one advice. Proceed carefully and acquaint yourself to the market forces. Don’t be overly aggressive too early, and yes starting with hundreds of tanks w/o prior experience in the industry is overly aggressive; the most successful dealers that we have started slowly, and built up their sales.

Nothing I say will fully prepare you in doing business in LPG, experience is truly the best teacher.

[mac_bolan00]

i'm not so sure with distributors but refillers must establish good ties with their sources because of this rebate thingie, fueled by competition with other refiners and importers.

do refillers give rebates to distributors?

[mell]

also, it is also important for refillers to establish a relationship with more than one source just in case your supplier (one of the big 3 or others) run out of LPG. Sounds imposible, its actually quite common.

speaking of rebates, we have a program where we offer ("share")rebates if a dealer purchases a certain amount. of course only our top performers can reach this amount.

[DropZite]

any update dito? this is a good discussion...

nasa 250-300 lang yung empty 11kg lpg gas tank before (2002)? ngayon ata nasa 900-1000 na last time i checked.. ang laki ng tinaas!

[Kirhat]

I find this information very informative. I just would like to ask your permission to reprint what you have discussed here and package it and post it in a blog. I was hoping to spread the relevant info that you have given here to a more wider audience. I will do some more research also to make sure that all areas are covered, especially for those that wants to start operating this type of business.

http://seeknomore.blogspot.com/

I just wanted to make a few clarification first from the point of view of the retailer:

Initial investment will include P250-P600 per tank, plus P180 for refill, right?

How much or what is the price range for each tank if they sell it, P500-P600?

What is the average turn-over rate for each tank, 1 month for a family of 5?

On the operating cost, do you need one staff/laborer/personnel for every 100 tanks?

If you employ somebody who will deliver these tanks to the consumers, would 1 delivery man would be enough to cover 2 subdivisions, community, barangays?

Unless you have an existing business (i.e. sari-sari store, mini-mart, etc). putting up an lpg business would not be efficient because of high operating cost and initial investment cost (i.e. store space, motorbike, utilities, etc), right?

Thanks for your help.

[Kirhat]

After this household LPG business, I will have to do some research on lpg-auto business because there are lot's queries on this one and I'm still thinking of helping them draft a business plan.

[nicomambo]

Just to revive this thread. Any feedbacks on M-Gas?

[Emeraldgold]

Yes I would like to revive this thread too. How many and what govt agencies do you have to deal with in LPG retailing aside from DTI and ERB?

[mell]

wow, I cant believe there is still some interest in this thread!

Please feel free to ask questions.

The LPG marketplace has completely changed since 2002.

[Kirhat]

I haven't had time to come back here and draft a new post on my blog about the LPG business. I have one dealing with LPG refilling stations, but I need to do a follow thread to support the already rich resources contained there.

Thanks mell for reminding me about it.

Seek No More
Nesting Buddy